Generally, people don’t have infinite sums of money and so the key to successful portfolio building is to ensure that your pot of money does not diminish. For example, if a deposit is going to be £15,000 and you spend £20,000 on renovation costs, you MUST ensure that you will be able to get your money back out. This will enable to you to buy, refinance and start the renovation cycle again. If your money gets stuck in the project, you are putting a stop to your portfolio building, YOU DID NOT BUY THE RIGHT PROPERTY.
If you are not getting all cash back out, you are not portfolio building, you are simply investing in property, there is a difference!
So How Do I Find The Right Property?
We recommend inexperienced investors use a reputable property sourcer. Before engaging, make sure you do your due diligence; many property sourcers are inexperienced and their deals leave a lot to be desired.
Here are some tips on how you can ensure your property sourcer is legit.
- Are they on companies house?
- Do they own their own properties?
- How long have they existed? Ideally, go for someone with 5-10 years’ experience
- Ask for past project results
- Do your own maths.
Source your own property, this will save you money as you won’t have to pay anyone a sourcing fee. Rightmove is where most of the properties on the market are listed, and although good deals are hard to come by, you will find the occasional gem. For those who are very experienced, auctions are the best place to source projects. There are pit falls and the potential to lose money if you make a mistake on your financing. Always remember, properties tend to be at auction because there is something wrong with them. Before bidding, visit the property, check the legal pack, and make sure it’s the right property. You cannot pull out afterwards!
Calculating The Figures
This is the most important part:
1. What is the end value? What is the ceiling price in the postcode? What comparable do you have? Remember, always play it safe on your end value.
2. How much will your renovation cost? Take into account things that could go wrong, always add in a contingency.
3. How much money do you want to make? If you are selling the property this is profit, if you are keeping the property it is equity.
Getting Your Money Back Out
Most buy to let or commercial lenders will give you no more than 75% of the properties new market value when refinancing. The total you spend buying and renovating your property must equal no more than 75% of its new value, this will allow you to remove all of your money from the deal at the refinance. If you spend any more than this, that money will be stuck in the property until you sell it or refinance it in the future.
Follow these tips and let us know how you get on. If you need a hand getting your portfolio off the ground, check out our Portfolio Building or Project Management Service, we are always happy to help.